GST on Renting Property: Residential vs Commercial Rules and the RCM Trap

A startup founder in Bengaluru rents a small office for ₹1,00,000 a month from a retired landlord who has no GST number. Every month she pays the rent and assumes GST is not her problem — the landlord is unregistered, after all. Then her accountant points out the truth: since 10 October 2024, she is the one who must pay 18% GST on that rent under reverse charge. Rent is one of the most misunderstood corners of GST, because the answer is never just “18%” — it is 18% paid by someone, and that someone changes with the property type, the landlord’s registration, and what the property is used for.

The starting point: rent is a taxable service

Schedule II of the CGST Act, 2017 treats leasing, tenancy or a licence to occupy land or a building as a supply of service. The GST rate on renting immovable property is 18% (SAC 9972, under Notification No. 11/2017-Central Tax (Rate)) — one of the four types of GST in play depending on whether the supply is intra-state or inter-state, as the CGST, SGST, IGST and UTGST explainer sets out. The question is never whether rent is taxable — it is who discharges the liability, and whether an exemption applies. Three scenarios cover almost every case, and the table below is the whole story in one glance.

Residential rent: the exemption most people know — and its limit

Renting a residential dwelling for use as a residence remains fully exempt when the tenant is unregistered — a salaried person renting a flat to live in pays no GST on the rent, as per Entry 12 of Notification No. 12/2017-Central Tax (Rate). But the exemption ends the moment the tenant is a registered person. Since 18 July 2022, Notification No. 05/2022-Central Tax (Rate) has put “renting of a residential dwelling to a registered person” under reverse charge (Entry 5AA of Notification No. 13/2017-Central Tax (Rate)). So a company renting a flat for an employee, or a registered proprietor renting a house for business use, must pay 18% GST under RCM. One exception: a registered proprietor renting a flat in a personal capacity for their own residence, not for the business, stays outside the tax.

Worked example: a company rents a 3BHK for a transferred employee at ₹40,000 a month from an unregistered landlord. The company must pay ₹7,200 a month (18% of ₹40,000) under RCM in its GSTR-3B, and can claim it as input tax credit if the accommodation is used for making taxable supplies.

Commercial rent: the 2024 RCM expansion

Commercial rent was always taxable at 18% — the change was who pays when the landlord is unregistered. Following the 54th GST Council’s recommendation, Notification No. 09/2024-Central Tax (Rate) dated 8 October 2024 added Entry 5AB to the RCM table: from 10 October 2024, renting of any property other than a residential dwelling by an unregistered person to a registered person is under reverse charge. The registered tenant pays 18% in cash through the electronic cash ledger and claims ITC subject to section 16. The RCM does not apply to composition dealers: Notification No. 07/2025-Central Tax (Rate), effective 16 January 2025, excluded them from Entry 5AB, and Circular No. 245/02/2025-GST dated 28 January 2025 clarified the treatment. A composition dealer renting from an unregistered landlord has no RCM liability, but also cannot claim ITC on the rent. For the wider reverse-charge landscape, see the complete GST hub guides, which covers RCM across services.

Back to the Bengaluru founder: office rent ₹1,00,000 a month from an unregistered landlord means ₹18,000 a month under RCM — but as a regular registered taxpayer she can claim that ₹18,000 as ITC against her output tax, so the real cost is a cash-flow timing issue, not a dead cost.

What counts in the value — and the ITC question

RCM on rent is charged on the full taxable value, which includes maintenance and other charges bundled into the rent where they form part of the consideration. Do not try to split the invoice into “rent” and “maintenance” to shrink the base unless the maintenance is genuinely a separate supply. On ITC: RCM tax paid in cash is available as credit subject to section 16 — but only if the property is used for making taxable supplies. Rent for a residential flat used as a director’s personal residence, or for exempt supplies, gives no credit.

Checklist: get rent GST right this month

• Classify the property first: residential dwelling or commercial? The answer decides which RCM entry applies.
• Check both registrations: landlord registered or not, tenant registered or not — the combination picks the mechanism.
• Ask what the property is used for: a registered person’s own residence is exempt; the same flat used for business is taxable under RCM.
• Pay RCM in cash: reverse-charge tax must be discharged through the electronic cash ledger — ITC cannot be used to pay RCM liability. The payment itself goes through the PMT-06 challan, as the guide to paying GST online explains step by step.
• Issue the self-invoice and payment voucher under section 31(3)(f) and (g), and report the RCM in GSTR-3B.
• Composition dealers: confirm the Entry 5AB exclusion applies to you before assuming no liability — and remember there is no ITC either way.

Rent disputes with the department usually start as notices, not raids — and the GST notice survival guide explains the portal-notice routine, reply windows and appeal traps that apply to any RCM demand.

FAQs

I am a salaried person renting a flat. Do I pay GST on rent?
No. Residential rent for use as a residence is exempt when the tenant is unregistered. GST enters the picture only when the tenant is GST-registered.

My landlord is unregistered and I run a registered business from a rented office. Who pays GST?
You do. Since 10 October 2024, commercial rent from an unregistered landlord to a registered tenant is under RCM at 18% — you pay it in cash through GSTR-3B and claim ITC if eligible.

Does RCM apply to composition dealers?
No, for commercial rent under Entry 5AB — Notification No. 07/2025-Central Tax (Rate) excluded composition taxpayers from 16 January 2025. They also cannot claim ITC on the rent.

Can I claim ITC on GST paid under RCM on rent?
Yes, if you are a regular registered taxpayer and the property is used for making taxable supplies, subject to section 16. RCM tax must first be paid in cash; it cannot be set off against ITC.

What if the landlord is registered?
Then it is simple forward charge: the landlord charges 18% GST on the invoice, you pay rent plus GST, and you claim ITC on the invoice like any other business expense.

Sources

Schedule II, CGST Act, 2017 (renting of immovable property as a supply of service); Notification No. 11/2017-Central Tax (Rate) — 18% rate on renting of immovable property (SAC 9972); Notification No. 12/2017-Central Tax (Rate), Entry 12 — exemption for residential dwelling rented for use as residence; Notification No. 05/2022-Central Tax (Rate), dated 13 July 2022 — Entry 5AA, RCM on renting of residential dwelling to a registered person, effective 18 July 2022; Notification No. 09/2024-Central Tax (Rate), dated 8 October 2024 — Entry 5AB, RCM on renting of immovable property other than residential dwelling by an unregistered person to a registered person, effective 10 October 2024; Notification No. 07/2025-Central Tax (Rate), effective 16 January 2025 — composition taxpayers excluded from Entry 5AB; Circular No. 245/02/2025-GST, dated 28 January 2025 — clarifications on RCM for renting.